August 30, 1990
MAR-2-05 CO:R:C:V 732609 EABCATEGORY:MARKINGTARIFF NO.:9802.00.80
Leslie A. Glick, Esq.
Porter, Wright, Morris & Arthur
1233 20th Street, N.W.
Washington, DC 20036-2395RE: Country of origin of textile swatch books assembled in Mexico in part with U.S. goods exported and returned; ultimate purchaser; 19 CFR 10.16; 19 CFR 10.22; 19 CFR 10.24; 19 CFR 11.12b(a); 19 CFR 12.130(c); 19 CFR 134.1(d); 19 CFR 134.32(d); 19 CFR 134.32(h); HQ 710493; HQ 732082; Pabrini, Inc. v. United States
Dear Mr. Glick:
This is in response to your letter of July 27, 1989, on behalf of V.I.P., Incorporated, requesting a ruling on the country of origin marking requirements of swatch cards, swatch book page sets, complete swatch books and swatch chips assembled in Mexico in part of U.S. goods and returned to the U.S. We regret the delay in responding.FACTS:
V.I.P. is a designer and manufacturer of trade advertising and promotional materials in the form of swatch cards, swatch book page sets, complete swatch books and swatch chips. It contemplates establishment of a plant in Mexico for assembly of these articles. A swatch card consisting of a sheet of heavy paperboard or light cardboard is printed in the U.S. by V.I.P. with information about swatches of fabric to be permanently glued to the card. During a recent telephone conversation, you replied that some of the fabric was of foreign origin while some was domestic. A swatch book page set is a series of related swatch cards numbered for insertion in a swatch book. A swatch chip is a single piece of paperboard or cardboard that is printed with information about a piece of fabric that is to be stapled or glued to the chip. A small hole is then punched into the corner of the chip so it can be placed on a pegboard for display or bound with other chips in a book for the same purpose. The
swatch cards, swatch book page sets, swatch books and swatch chips are produced under contract for a particular customer that is a wholesaler of the fabrics represented by the swatches. The fabric wholesaler provides the swatch books to independent showrooms, free of charge, to be used as samples for the purpose of encouraging orders from customers of the showrooms for the fabrics. The articles are to be assembled in Mexico and packaged for shipment not to V.I.P., but directly to its U.S. customer. You state that V.I.P. would indicate the Mexican origin of these items to its wholesale customer by either marking the shipping cartons or informing him directly that the articles are assembled in Mexico.ISSUE:
What are the country of origin marking requirements of swatch cards, swatch book page sets, swatch books and swatch chips assembled in Mexico in part with U.S. components?LAW AND ANALYSIS:
I. What is the country of origin of the imported articles?
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304) generally provides that all articles of foreign origin (or their containers) imported into the U.S. are required to be legibly, conspicuously and permanently marked to indicate the country of origin to an ultimate purchaser in the U.S. For purposes of this statute, "country of origin" means the country of manufacture, product or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within the meaning of this part.
Products of the U.S. are not subject to these marking requirements. In general, since further work or material added to an article in another country must effect a substantial transformation in order to render such other country the country of origin, a U.S. product sent to another country for minor processing or mere assembly operations not amounting to a substantial transformation, remains a product of the U.S. and is not required to be marked upon its return. An exception to this is set forth in {10.22, Customs Regulations (19 CFR 10.22), which provides that articles assembled in whole or in part from U.S. components which are entitled to entry under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), are considered products of the country of assembly for purposes of 19 U.S.C. 1304, whether or not the assembly constitutes a substantial transformation.
Regarding the assembly of some of the merchandise with U.S. components, HTSUS subheading 9802.00.80 provides a partial duty exemption for:
[a]rticles assembled abroad in whole or in part of fab- ricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubricating, and painting.
All three requirements of HTSUS subheading 9802.00.80 must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full value of the imported assembled article, less the cost or value of the U.S. components assembled therein, provided there has been compliance with the documentation requirements of section 10.24, Customs Regulations (19 CFR 10.24).
Assembly operations for purposes of HTSUS subheading 9802.00.80 are interpreted at section 10.16(a), Customs Regulations (19 CFR 10.16(a)), which specifically enumerates gluing operations or the use of fasteners as acceptable means of assembly. In HQ 708700 (April 27, 1978) photo album covers were not substantially transformed when used with sheets, screw posts and "fly" sheets to form the finished album. In HQ 728269 (July 29, 1985), Customs held that operations performed on greeting cards, such as pressing out, folding and gluing, were minor and did not constitute a substantial transformation. Customs also has determined that while such assembly operations performed in another country do not substantially transform the greeting cards into products of that country, if the cards are entitled to entry into the U.S. under subheading 9802.00.80, HTSUS, then 19 CFR 10.22 requires that they be considered products of the country of assembly and marked accordingly. See HQ 729758 (February 22, 1988). In HQ 555213 (February 21, 1990), Customs held that the gluing together in Mexico of printed U.S. paper products to form greeting cards was an advancement in value for purposes of subheading 9802.00.80 HTSUS.
Section 10.16(b), Customs Regulations (19 CFR 10.16(b)), provides that assembly operations may be preceded, accompanied, or followed by operations incidental to the assembly.
Operations incidental to the assembly process are not considered further fabrication, as they are of a minor nature and cannot always be provided for in advance of the assembly
operation. In C.S.D. 81-52, 14 Cust.Bul. 844, Customs concluded that foreign hole-punching operations that were not substantial and merely incidental and in connection with the assembly of a cable televisionn converter did not preclude the application of item 807.00, Tariff Schedule of the United States (TSUS), the precursor section to subheading 9802.00.80, HTSUS.
Consequently, in this case we find that while the gluing, assembly and packing performed in Mexico does not substantially transform the swatch chips, swatch cards and swatch book page sets, the U.S. printed material and fabric of whatever origin, will be advanced in value in Mexico by the foreign assembly process, are eligible for a partial duty exemption under subheading 9802.00.80, HTSUS and will be considered to be products of Mexico pursuant to 19 CFR 10.22, and they must be marked accordingly. If they are made entirely of American-made material, the U.S. origin of the material may be disclosed by using: "Assembled in Mexico from material of U.S. origin," or some similar phrase; however, if not entirely of U.S. material, and the origin of the U.S. components is disclosed, then the origin of all components must be disclosed.
II. Do the imported articles qualify for any exceptions from marking?
As provided in 19 U.S.C. 1304(a)(3)(D), implemented in 19 CFR 134.32(d), articles for which the marking of the container will reasonably indicate the origin of the articles are excepted from marking. As provided in 19 U.S.C. 1304(a)(3)(H), implement- ed in 19 CFR 134.32(h), an article is excepted from marking where the ultimate purchaser, by reason of the circumstances of the importation, must necessarily know the country of origin of such article even though it is not marked to indicate its country of origin. The applicability of either exception depends upon the identity of the ultimate purchaser. Section 134.1(d), Customs Regulations (19 CFR 134.1(d)), defines the ultimate purchaser as generally the last person in the U.S. who will receive the article in the form in which it was imported. Clearly, V.I.P. is not the ultimate purchaser of the imported articles. As indicated in your submission, the imported articles are sent directly to the wholesale customer, who purchases them for its own use to sell its fabric. The imported samples are not, in fact, received by V.I.P. The issue remains, however, whether the last person to "receive" the imported samples is the wholesaler that purchases them for use in selling its products, or the fabric showrooms to which the imported articles are given to facilitate sales of the wholesaler's fabrics, or the retail customers that view the imported articles.
In Legal Determination 79-0382 (HQ 710493, July 17, 1979), Customs stated that the ultimate purchaser is not necessarily the
ultimate user or consumer. In that case, dinnerware was imported for sale by the importer to a company that resold it to an airline company for its use in serving in-flight meals. The airline company received the dinnerware in the original, unopened and properly marked bulk containers. Customs found that the airline passengers would not keep the dinnerware, but would return it to the airline company after usage. The ultimate purchaser was the airline company, not the airline passengers, and the dinnerware, shipped to and received by the ultimate purchaser in its original, unopened and properly marked containers was excepted from marking as provided in 19 U.S.C.
In HQ 732082, March 14, 1989, Customs determined that the ultimate purchaser of imported samples was the importer who used them to solicit orders of foreign merchandise from prospective customers, not the prospective customers. In that case, the imported samples were neither sold, distributed, nor given away by the importer. Customs reasoned that since prospective customers would be expected to return the samples after examining them, the prospective customers did not "receive" the imported article within the meaning of 19 CFR 134.1, and could not properly be considered the ultimate purchaser.
We find in this case that the prospective customer who views the imported sample swatch books and chips does not "receive" them and is not the ultimate purchaser. As in HQ 710493 and HQ 732082, the showroom customer is expected to return the swatch books and chips after selecting a fabric or fabrics represented by the samples. The only remaining question is whether the ultimate purchaser is the wholesale purchaser of the imported articles, or the showroom that displays the imported samples to prospective purchasers.
In Pabrini, Inc. v. United States, 10 CIT 128 (1986), the question before the court was whether by paying admission to a racetrack, the racetrack patrons obtained imported umbrellas by paying money or its equivalent in order to receive the articles. The court stated that the ultimate purchaser is the last person to pay consideration for the imported article, and found that by purchasing a ticket, the patrons paid consideration for two promises: admission and the receipt of an umbrella to take away as their own (cf. 19 CFR 134.1(d)(4): "If the imported article is distributed as a gift, the recipient of the gift is the ultimate purchaser"). Applying the foregoing principle to the facts in this case, we find that the last person in the U.S. who will pay consideration for the samples is the wholesaler, and not the showroom that obtains the samples at no cost and for no purpose other than merely to facilitate sales of the wholesaler's fabrics. We also note that the showroom is clearly not the
recipient of a gift within the meaning of 19 CFR 134.1(d)(4), even though it receives the subject articles free of charge.
Therefore, we find that the wholesaler is the ultimate purchaser of the imported articles, and that the articles may be excepted from marking under 19 U.S.C. 1304(a)(3)(D). Based upon your statement that the bulk containers in which the articles are imported will be clearly marked to indicate the country of origin of the imported articles and that the articles will be shipped directly to the wholesale customer, the marking of the container will reasonably indicate the country of origin to the ultimate purchaser.
The exception provided in 19 U.S.C. 1304(a)(3)(H) does not apply. Customs has approved such exceptions only in situations where there is direct contact between the ultimate purchaser and the manufacturer. For example, in C.S.D. 80-114, (HQ 711081, September 26, 1979), Customs found that where the ultimate purchaser was the importer that owned an interest in the company from which it imported the articles, and ordered the articles directly from that company, the exception under 19 U.S.C. 1304(a)(3)(H) applied. In HQ 733096, February 8, 1990, Customs applied this exception where the ultimate purchaser was the importer and also the parent corporation of its wholly owned subsidiary, from which the parent corporation ordered the foreign articles.
In this case, although V.I.P. has direct dealings with the foreign manufacturer and necessarily knows the country of origin of the imported samples by reason of the circumstances of their importation, V.I.P. is not the ultimate purchaser. Since the wholesale customer, who is the ultimate purchaser, has no direct dealings with the foreign manufacturer, the exception does not apply. The fact that V.I.P. has a close and direct customer relationship with the wholesaler and will inform him in advance that these articles will be assembled in Mexico is insufficient to qualify for an exception under 19 U.S.C. 1304(a)(3)(H).
As provided in 19 CFR 11.12b(a), textile fiber products imported into the U.S. shall be labeled or marked in accordance with the Textile Fiber Products Identification Act (15 U.S.C. 70-70k), and the rules and regulations promulgated thereunder by the Federal Trade Commission (FTC), unless exempt from marking or labeling under 15 U.S.C. 70j. Customs recommends that you contact the FTC regarding this matter.HOLDING:
U.S. printed materials and fabric of foreign or domestic origin which is imported after having been assembled in Mexico into swatch cards, swatch book page sets, complete swatch books and swatch chips are not substantially transformed but qualify for partial duty exemption under subheading 9802.00.80, HTSUS. The country of origin of such textile articles is Mexico, pursuant to 19 CFR 10.22. If the textile fabric books assembled therefrom are made entirely of American-made components, the U.S. origin of the components may be disclosed by using "Assembled in Mexico from material of U.S. origin," or some similar phrase; however, if not entirely of U.S. material, and the origin of the U.S. components is disclosed, then the origin of all components must be disclosed.
The ultimate purchaser of the imported articles is the wholesale customer who will use them as samples to be shown to retail customers to solicit sales of fabric represented by the articles. The articles may be excepted from country of origin marking pursuant to 19 CFR 134.32(d), and only the outside container must be marked, provided that Customs officials at the port of entry are satisfied that the imported articles will be used only in the manner described above and that wholesale customer will receive them in their original unopened cartons that are marked to indicate the country of origin of the textile articles contained therein.
Sincerely,
Marvin M. Amernick, Chief